Commercial property taxes skyrocket amid vacancies

City council could hike residential property taxes as part of a “multitiered” effort to close a widening gap between commercial and residential bills, says a veteran councillor.

Toronto-based firm Altus Group compared tax rates in 11 Canadian cities over 15 years and found commercial tax rates are at least double those paid by residential property owners in eight of the 11 cities surveyed. The report states the gap in tax burden between Calgary businesses and homeowners skyrocketed by 12 per cent this year, increasing the disparity between those tax bases as the city grapples with a crippling downtown vacancy rate.

Altus said Calgary had the highest commercial tax rate increase in the country for two years in a row, with a hike of 11.4 per cent in 2017 and another 9.5-per-cent bump this year. Those increases put Calgary’s gap at $3.06 in taxes paid by businesses for every $1 paid in residential taxes, just above the national average of $2.90 to $1.

Some councillors have suggested shifting some of the tax burden to homeowners by increasing residential taxes. And while that option is still on the table, Coun. Ward Sutherland said closing the commercial to residential gap won’t be solved by simply increasing residential taxes.

He said the fix should be a multitiered solution, and could include phasing in increased residential taxes while creating different classifications of businesses with different tax rates under the new city charter. “Whether it’s non- residential or residential, we’ve got to do it in a pragmatic, gradual manner so it’s not a severe shift,” Sutherland said.

The office vacancy rate in Calgary climbed to about 23 per cent in the first quarter of 2018, up from 20 per cent a year earlier. Those vacancies led to a redistribution of the tax burden to some non-residential property owners outside the core, such as retailers in the suburbs, to the tune of 10 per cent.

Council instead used $90 million in reserve funds to soften the tax blow to office buildings sitting empty by capping property tax hikes on businesses at five per cent.

The city will do away with separate business taxes and business property taxes next year in favour of a harmonized tax, by consolidating the two bills and weighing business taxes based on assessed property value.

With Altus projecting another 17-per-cent bump to commercial tax rates in 2019, the Canadian Federation of Independent Business is calling on the city to “commit to stop increasing the burden” on business owners by finding room in the city’s operating budget.

“The ratio that we currently have is bad enough and entrepreneurs deserve property tax fairness,” said Amber Ruddy, Alberta director with the CFIB. “Business owners are happy to pay for their fair share, but this goes beyond what’s reasonable.”

While the federation isn’t advocating for residents to pick up all the tax slack, Ruddy said the city should look at balancing the burden and slashing the budget “very closely.”